Selling the LLC instead of the house??

Question

I am in desperate need of advise! I have a call in to my attorney, but I don't know how long that will take.  I wanted to put in an assignable contract on a house, but was told that the seller wouldnt accept assign-ability  clause, - so I was given the advise to buy an LLC, then put a contract on the house under the LLC, then instead of assigning a contract, selling the LLC.

I have a buyer looking today and need to know what all I need to do with the LLC before selling it - I filed for it with the State and have the articles of Organization, but nothing else.  I need to know what else needs to happen before I can sell...

Please and thank you!

Sandra

Sandra Bivin · Answer

HI Bill,

The reason I didn't opt to do a double close was just to keep prices low.  I am working with a company now that might void the whole process and just cut me a check - but I am interested in what this RE attorney has to say about it -when I called my attorney - she lectured me about how DORA will figure me out, and that I can be penalized for earning commissions on property without a license.  I couldn't get her to understand that I am not selling property, I am selling a business that has control of a contract. I have also heard that this is a very creative way to avoid nonassignable contracts.  It was pretty cost effective as well.  I already have this particular property under contract, so the seller (who is his own agent) accepted that.  And to be honest, I am not sure that he wouldn't accept an assign-ability clause, but my agents supervisor told me he probably wouldn't.  What do you recommend in that situation? Would you have tried?  I was told that if I tried and he didn't accept, he wouldn't accept anything from me...

Thank you for your response - I am soaking all this up - I am so grateful for this site!!!

Sandra

Bill S. · Answer

@Sandra Bivin why not do a double close? I heard a local real estate attorney speak about these types of transactions and he expressed concerns about getting all the i's dotted and tees crossed. Things like documents stating the change in officers of the LLC and address of correspondence. I think his main concern is that people who sell property this way can get sloppy which can create liability and put a cloud on the title if something goes really wrong. His advise was don't do it. I would say he tends to be fairly conservative in his approach but that's what he said. His comment is that the devil's in the details and all the gurus fly over that with a wide brush.

On another note, if you asked the seller about an assignable contract and they said no. What do you think they will do with one that's in the name of an LLC? I have to think a reasonable agent would want proof of funds, a lender letter, or something like that showing you can perform.

Let us know how things turn out.

Sandra Bivin · Answer

Linda,

That sounds exactly like what they explained - I didn't think about the "other assets/liabilities" issue,  I will ask.  My question was more along the lines of what (other than the Colorado registration) needs to be done before I can sell it.. I read that I do not need an EIN, but is there anything else I need?

Linda Weygant · Answer

It will cost you $50 to register the LLC in Colorado.

You can then sell the LLC.  Get with a lawyer or other knowledgeable person who knows how to transfer the ownership of an LLC.  Essentially, the way it would work is this:

Your contract with the buyer will be to buy the LLC, not the property.  The contract to purchase the property is the only asset the LLC has.  You will have to somehow certify (the lawyer should know how to do this) that the LLC has no other assets or liabilities.

Before the property is scheduled to close, you will have to close on the sale of the LLC.  At this time, the buyer will give you your price and the lawyer will work to transfer ownership of the LLC to the buyer.

If the buyer is getting a loan, you'll have to do this in plenty of time so that the mortgage underwriter can verify the new ownership, so check into this time frame.  If it's a cash purchase, check with the title company.

You will then want confirmation from the lawyer that the ownership transfer has occurred.  If something happens between the time that you sell the LLC and the time the buyer closes on the contract to purchase the property, you'll want to make sure that it's the buyer who is held responsible for something like not finishing the deal or other issue that could come up, not you.

Note:  I have not done this transaction before, but I have clients who have been on both sides of this type of transaction.  This advice comes from having to account for the transactions after the fact and asking my clients a few questions.  I have never watched one of these transactions as it was unfolding.

Sandra Bivin · Answer

Colorado requires you to add it as a clause, and the seller would not accept the clause.  The contract is already accepted under the LLC name, so I guess I need to know what my  options are for offloading the property.  Ideally this would be at no more cost to me...

David Dachtera · Answer

In many states, contracts are assignable unless the contract itself stipulates to the contrary. Check with your attorney when you get hold of him/her.